momagri, movement for a world agricultural organization, is a think tank chaired by Christian Pèes.It brings together, managers from the agricultural world and important people from external perspectives, such as health, development, strategy and defense. Its objective is to promote regulationof agricultural markets by creating new evaluation tools, such as economic models and indicators,and by drawing up proposals for an agricultural and international food policy.

Commodity markets:
Looking beyond the classical industrial approach

October 27, 2014

Following the accidental death of Christophe de Margerie, the media were quick to comment on the challenges facing the Total Group. Nicolas Doze, a television columnist for the French BFM-TV channel, reacted by contextualizing the future of the group in an oil market where the price of a barrel is currently below $100, while nothing predicted it a few years ago. Christophe de Margerie himself did not believe it.

In fact, oil is unique in the world. Contrary to most economic sectors, costs are not setting prices. And another strategic economic sector shares this reality––agriculture. Likewise, nobody could have predicted a year ago the fall of grain prices in Europe, including wheat at €160/ton.

The specific drivers of agro-food competitiveness are showing––just as for oil––that it is a specific sector that escapes linear reading, and whose stability and effectiveness are backed by the balance between strategies aiming to “competitiveness-cost” and “non-price competitiveness” (innovation, differentiations and implementation of indicators).

Consequently, it is not because prices are high that farmers’ incomes will stabilize and rise, all the more so if costs are higher than prices paid to producers. This is a margin squeeze situation, in which it is problematic to use a physical supply/demand ratio without integrating the non-cost factors.

Thus, financial markets are becoming increasingly “nervous” and “unpredictable”. And it is unlikely to get better in the next few months, due to the combination the various factors: Speculators’ arbitrages between different assets, the mimetic choices made by agricultural producers due to the recent soaring prices recorded on some crops, and the negotiations regarding the practical procedures of regulating commodity markets.

Lastly, it is a question of discarding a classical industrial approach based on prices and a distorted vision of this strategic market. The requirement for more structured and effective agricultural public policies is therefore heightened to counter the current margin squeeze, which is characterized by increasingly constraint budget revenues and rising food and non-food needs.